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Why Business Survival Requires Brand New Management

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Most of today’s major corporations are suffering from a lethal disease. The disease isn’t Covid. It’s much more deadly, in part because its symptoms are often invisible to those suffering from it. It is destroying productivity, crimping innovation, demoralizing workers, and leading to steady decline. The malady—untreated—is giving capitalism itself a bad name.

The disease is industrial-era management. It is management that can’t adapt to the fast pace and rapid change of the emerging digital age, in the shadow of an economic recession.

The Disease Of Industrial-Era Management

If you have worked in a large firm, its characteristics will be familiar to you. Strategy gets set at the top, many layers above the customer. Power trickles down. Big bosses appoint little bosses. Individuals compete for promotion. Compensation correlates with rank. Tasks are assigned. Managers assess performance. Rules limit discretion. Significant innovation goes unfunded, Budgets are battles of units for resources. HR’s function is to control employees. The key performance indicator is the level of quarterly profits. Executives are generously compensated in stock while employee compensation stagnates.

This is the operating system for most major corporations today. It isn’t usually written down. It doesn’t need to be. It’s assumed in the teaching at most business schools and in the writing in most management journals. When reforms are put forward, they are about changes to pieces of the system, yet without rethinking the entire system, so they don’t stick.

This modus operandi is rarely discussed as a whole in boardrooms, business schools, or Wall Street, in part because there is no perceived alternative. It’s simply “the way things are done around here.” It is so deeply engrained in everyone’s consciousness, it has become invisible. It is hard for participants to imagine any other way of managing a firm.

This way of running a company made a lot of money in the 20th century, but it’s a poor fit with the emerging digital age. It isn’t responsive enough to deal with newly empowered customers or the turbulent context.

Nor is it easy to change. As shown in Figure 1, it operates like the auto-immune system of the human body: change in one process elicits a communal response from other processes to prevent change from taking hold.

Firms run in this manner are often extracting value for shareholders and their executives through share buybacks and incurring debt.

The Advent Of Digital-Age Management

Meanwhile, there is another, more productive, more enduring, and more profitable way to run a company. It’s not a recent idea: Peter Drucker enunciated the core principle back in 1954: (Figure 2).

Like most revolutionary insights throughout history, Drucker’s principle suffered from neglect for half a century, because its truth was so counter-intuitive: The purpose of a firm was obviously to make money for the company. It was only the growing importance of software development firms, and their rapid grwoth that the centrality of adding value to the customer began to be recognized, and started making a great deal of money, in the last two decades (Figure 3).

Today, customer-driven management is the modus operandi of the largest and fastest growing firms in history. Its exponents are the well-known firms shown in Figure 4. These 14 firms that are worth around $9 trillion—that’s trillion, not billion.

These firms have already transformed many sectors—and our lives, including how we work, how we operate factories, how we farm, how we communicate, how we get about, how we shop, how we play and watch games, how we deliver health care and education, how we raise our children, how we entertain ourselves, how we read, how we listen to music, how we watch theater and movies, how we worship; in short, how we live.

The first difficulty in discussing the new way of managing is what to call it. It has acquired various names as shown in Figure 5. What to call it is however less important than the mindset and the passion of the managers and staff in the firm who exemplify it. It is not just an abstract framework: it is something that people live.

Figure 5

The principles of digital-age management are the opposite of those of the industrial-era, (Figure 6).

The processes of the digital age are also the opposite of those of the industrial era (Figure 7)


None of the firms mentioned in Figure 4 are perfect exemplars of these principles and processes. All these firms are on a journey to get there. The result is greater speed, efficiency, and greater access to resources and talent (Figure 8).

The Need To Change

As a result, most firms see the writing on the wall and recognize in varying degrees that the old way of operating can’t cope with today’s economy. Most are pursuing digital transformations from the old to the new at various speeds and intensities. Yet most of these efforts are being grafted on top of industrial-era management. The result is generally a mishmash of industrial-era and digital-age principles and processes. So the change usually doesn’t take.

Two Fundamentally Different Ways Of Managing

The reality is fhat industrial-era management and digital age management are two fundamentally different—and coherent—ways of running a corporation in a consistent fashion. In one—the predominant mode of 20th century management refined over the last 50 years—the principles and processes emphasize stable structures that operate top-down, control staff, and contain costs.

By contrast, digital age management is about enabling staff to deliver value to customers. Making money is a result of a business model, not the goal. Horizontal interaction is just as important as vertical communications. Leadership occurs throughout the firm and continuous innovation is central.

The Transformation Journey

It is difficult for firms to grasp what is involved in the transition from industrial-era management to digital-age management without a comprehensive understanding of the many different dimensions that need to change. It also needs a realistic assessment of where the firm currently stands in relation to the two different ways of managing. Firms must also have some idea of what will be involved in making a multi-dimensional transition. There is a need to recognize that the journey will take a number of years, perhaps 5-10 years, to fully complete.

A diagnostic tool as shown in Figure 9 can help firms understand where they are currently,, and what would be involved in making a change. Such a tool can provide a kind of MRI scan of the organization. Managers can see at a single glance the health of the organization, or any part of it, along with clear implications as to where the problems are and how to go about fixing them.

If leaders or consultants are acting without a diagnostic tool that can produce truly relevant insights, they risk making the effects of market disruption worse. Such actions are not intended to harm: those steps are often taken because there is no way of making an objective assessment of the state of the firm or the organizational dysfunctions that need treating.

The diagnostic tool can help firms diagnose their current status in relation to both systems of management. It can be applied either to the entire organization or to any part of that organization, such as the leadership team, or any department, or any individual team, at any point in time. Unless the firm understands where it is today, it will never get to where it wants to go.

And read also:

A Powerful Diagnostic Tool For Digital-Age Enterprises

How Management Can Advance As A Discipline

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